The 1970s witnessed a revolution in British economic policy. When the decade began, Britain was the paradigmatic case of what has often been termed the Keynesian era. By the 1980s Britain was leading again but in a different direction. Under Prime Minister Margaret Thatcher, monetarist modes of economic policy-making replaced their Keynesian antecedents. How are we to explain this change in direction? That is the empirical question to which this chapter is addressed.

For those who are interested in the role of institutions in political life, the evolution of British economic policy during the 1970s also poses an important set of theoretical challenges. First, it invites us to explore the relationship between institutions and political change. Institutions are usually associated with continuity: They are by nature inertial and linked to regularities in human behavior. As a result political analysts have been able to demonstrate how national institutions impose a measure of continuity on policy over time. However, macroeconomic policy-making in Britain is a case of change, even radical change, in policy. We can use it to examine what role, if any, institutions play in the process whereby policies change. The question is whether institutional factors contribute to the explanation of change as well as continuity.

The shift from Keynesian to monetarist modes of policy-making also provides an appropriate case for the kind of analysis we associate with historical institutionalism.